Commentary and analysis on markets, personal finance, and wealth building from a contrarian perspective. "I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting there and trying to dream it up all yourself. Nobody’s that smart."
— Charlie Munger

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Sunday, November 1, 2015

Gilead Sciences is cheap and I am adding it to my investment portfolio

I have just recently added Gilead Sciences (GILD) to my investment portfolio. I had been watching the company for a while and with their recent earnings report I decided to add this blue chip stock to my portfolio. The company has a market cap of over $150 billion dollars and has nearly $25 billion of cash on its books. In its most recent earnings report sales were up 37%y-o-y and earnings were up 75% y-o-y.

The company focuses on hepatitis C virus and HIV treatments. Its primary HCV products Harvoni and Solvaldi basically cure people of hepatitis C. This is both a curse and blessing for the company as these drugs have propelled the company to its current heights. However there is competition coming from several other treatments by other drug companies.This is why that the stock did not move very much on the recent reports. Investors are concerned that sales will level off as Gilead faces more competition. In fact the stock sells for a price to earnings ratio of 9. The company initiated a dividend this year which equates to a yield of around 1.55%. The company has also been buying back its own stock($3.1 billion in buybacks last quarter).

I mentioned earlier that the company has around $25 billion in cash on its balance sheet (around 16% of its market capitalization). I think it is a good possibility that the management will use some of this cash hoard to purchase another drug company. This would be a great time to do it as many biotech companies are down double digit over the last several months.

In summary Gilead is a great company with a great product line and is run by a very smart management team. They are growing the company and returning cash to shareholders via buybacks and dividends. The stock is currently discounted on fears of a slow down in their core product franchise. However, I believe this is a temporary sentiment and therefore this is a great time to add a quality company to my portfolio.